Bahrain to raise $2 billion in bond sale after deficit spike

DUBAI: Bahrain is expected to raise $2 billion in a three-tranche bond sale on Wednesday, a document showed, after the coronavirus pandemic and low oil prices exacerbated its fiscal deficit and pushed total outstanding debt to nearly $40 billion.

The debt sale comes amid uncertainty over future fiscal help for the small oil-producing state, as wealthier Gulf neighbours who have previously come to Bahrain's aid have their own financial woes to deal with.

Bahrain gave initial price guidance of around 4.875% for a seven-year bond tranche, around 5.75% for 12-year notes and around 6.75% for 30-year bonds, according to the document from one of the banks arranging the deal.

Bahrain's fiscal deficit is estimated to have more than doubled to $4.4 billion last year, compared with a budgeted $2.1 billion, according to a bond prospectus reviewed by Reuters, that cited preliminary estimated figures.

That pushed its deficit to 14% of gross domestic product, compared with a budgeted 7% and a deficit that was 5% of GDP in 2019.

In 2018, Saudi Arabia, the United Arab Emirates and Kuwait pledged a $10 billion aid package over five years to Bahrain. That aid is estimated to cover about half of Bahrain's total financing needs through 2022, the prospectus said.

Bahrain has so far received more than $6 billion out of that zero-interest package and expects a further $1.85 billion this year.

"However, there can be no assurance that future payments will be available, in a timely manner or at all and such payments may be subject to delays or conditions beyond Bahrain's control," the prospectus said.

"Saudi Arabia and other GCC countries have also been significantly negatively impacted by the COVID-19 pandemic and low oil prices, and such factors may reduce the likelihood of additional support and timing of any payment."

The budget deficit is expected to be $3.4 billion in 2021 and $3 billion in 2022, the prospectus said, citing the draft 2021/2022 budget that is subject to parliamentary debate and approval.

Its GDP is expected to shrink by 5.4% in 2020 according to government estimates, the prospectus said. The IMF in October forecast Bahrain's real GDP would decline by 4.9%.

Bahrain's total outstanding debt was $39.8 billion as of the end of 2020, soaring to 118% of GDP. It stood at $36.1 billion a year earlier, or 93.8% of GDP. "This (Gulf) support is not guaranteed. But the market expects it to come through when and as needed," said Abdul Kadir Hussain, head of fixed income asset management at Arqaam Capital.

"Our estimate is that they will need $3-4 billion this year, with around $2 billion from this issue and then probably $1 billion sukuk, so they may not need a lot more in the conventional market this year."